A lawsuit targeting the industry that offers “Cash Now” in exchange for future settlement annuity payments has been dismissed, along with claims against a Virginia lawyer-legislator who represented some of the major players in the business.
Rulings this month by a Pennsylvania federal judge derailed the hopes of plaintiffs’ lawyers for a class action against J.G. Wentworth Originations LLC and other companies that offer cash in exchange for income streams from structured settlements.
Portsmouth attorney and three-term Democratic delegate Steve Heretick said the decision confirms he complied with the law in representing Wentworth and other settlement buyers, but says bad publicity from the lawsuit contributed to his primary election defeat in June.
The lawsuit accused settlement buyers of cutting corners as they navigated Virginia regulations designed to protect injured or disabled people receiving periodic settlement payments. The decision largely validated procedures developed by Heretick to secure approval of Virginia judges for settlement sales.
The Sept. 1 rulings by U.S. District Judge Chad F. Kenney of the Eastern District of Pennsylvania came in Dockery v. Heretick, 2:17-cv-4114. Kenney wrote separate opinions both to deny class certification and to grant summary judgment.
The industry that offers quick cash for future payments from structured settlement annuities, or SSA, has been accused of preying on vulnerable beneficiaries. Structured settlements – where a claimant’s recovery comes in periodic payments – are most often used when the claimant might have difficulty managing a large sum of money that arrives all at once.
After a structured payment plan is in place, settlement buyers offer a deal: Cash now in exchange for future payments that total far more than the cash on the table. A Washington Post article was titled, “The flawed system that allows companies to make millions off the injured.”
The 2015 article described a process where Heretick filed thousands of cases for judicial approval at the Portsmouth courthouse. The General Assembly enacted reforms the next year, including a mandate that sellers personally appear before local judges for sales approval.
The Pennsylvania lawsuit filed in 2017 on behalf of an injured Virginia man claimed Heretick and his clients regularly skirted the requirements for sellers’ access to independent advice under then-existing law. Their transactions between 2002 and 2009 amounted to fraud and violated the Racketeering Influenced and Corrupt Organizations Act, the lawsuit contended.
Heretick’s clients had sought to bullet-proof their sales by insisting on what they called “estoppel letters” from outside lawyers affirming that the lawyers provided independent advice to the sellers. The plaintiff’s lawyers said the letters were a sham. Some lawyers served as counsel for multiple sellers. The lawyers generally used standard language and were paid directly from proceeds of the sales.
But Kenney – the federal judge – rejected claims that Heretick’s system plainly violated the law. The disclosures and acknowledgements used to seek judicial approvals demonstrated that the settlement buyers advised sellers to seek independent professional advice, Kenney said.
“The fact that Wentworth did not allow sellers to waive their right to advice does not negate that the advice to seek counsel was given. Nor did Heretick falsely state that the Purchaser Defendants gave the sellers the option to waive their right to advice. Therefore, this representation was not a lie and, therefore, the predicate act of mail fraud is not capable of common proof via this representation,” Kenney wrote in refusing to certify a class action.
Similarly, the claim of conflicts of interest with “Frequent Flyer” lawyers fell short, the judge said, because Dockery could not show that a questionable structure existed in the same way for each lawyer. The same deficiencies doomed the claims against Heretick and his clients, Kenney said, granting summary judgment for all defendants.
“Whatever merit Dockery’s arguments have that lawyers who are hired to advise individuals about selling SSA payments should not be referred to sellers by SSA purchasers, be paid on a contingent basis, or sign letters potentially drafted by a purchasing entity, those are arguments better suited for the Virginia legislature than for this Court via a RICO claim,” Kenney wrote.
“We believe that the rulings on summary judgment and class certification were wrongly decided and we intend to appeal,” said Jonathan Auerbach of Spring House, Pennsylvania, one of the plaintiff’s team of lawyers.
Heretick said the lawsuit cost him more than just time and expense over four years. He said publicity early this year about the fraud allegations – embellished by political opponents – led to a primary defeat in June. He will not be on the ballot in November and his House term ends in January.
“I can tell you that being a subject of litigation where you’re called a ‘racketeer,’ a ‘fraudster’ was enormously harmful to me, not only personally but professionally, and now politically,” Heretick said.
Heretick characterized the lawsuit as a “crusade” against the practices of settlement buyers, although he was simply the lawyer who crafted the paperwork process.
“I think that it centered on me particularly because, number one, at the time I did a lot of these transactions around Virginia. Also being a member of the General Assembly gave it added notoriety,” Heretick said.
As initially filed, the lawsuit alleged that Virginia judges were complicit in a scheme to exploit SSA sellers. Kenney noted that the allegations were revised later to depict the judges as victims of misrepresentations.
“These attorneys in New York and Philadelphia, they spent a lot of time inventing lots of very wild theories, none of which was ever factually supported, as you can see from the court’s rulings,” Heretick said.
Heretick said his professional insurance carrier covered his defense. He was represented by Jeffrey B. McCarron and Kathleen M. Carson of Philadelphia.
Two Heretick clients, Wentworth and 321 Henderson Receivables LLC, were represented by lawyers from Troutman Pepper Hamilton Sanders LLP of Philadelphia.
Connecticut settlement adviser John Darer, who follows issues involving structured settlements, says lawsuits by settlement sellers have increased in the last five years, but have been met with only mixed success.
He said regulation has improved, but some vulnerable annuitants still get taken advantage of.
“There needs to be more publicity. There needs to be more regulation,” he said.
A lawsuit involving Terrence Taylor, the subject of the Washington Post article, has been pending in Portsmouth Circuit Court since 2015. Heretick represents companies that repeatedly purchased Taylor’s settlement income streams. Taylor ultimately sold all of his annuity benefits and is now a ward of the state, according to Connecticut attorney Edward Stone, who represents Taylor in the Portsmouth litigation along with Jeremiah A. Denton III of Virginia Beach.
Stone said the Portsmouth case has languished. A motion to compel discovery has been pending since 2015. A hearing is scheduled Oct. 6 before retired Fairfax Circuit Judge Charles J. Maxfield.